Price Increases on Upgrades to Take Effect Feb. 1

12/01/1999

Joanna Doyle

IBM informed its business partners December 1 that they will institute a price increase for all upgrades to the AS/400 700 series, effective Feb. 1, 2000. IBM representatives said they hope that will give customers a fair amount of time to decide the best approach for meeting their IS needs in the upcoming year.

“We wanted people to understand what their options are, quite frankly,” said Drew Flaada, director of product management for the AS/400 division. “I mean, if you look at a 90-day window to do this kind of an upgrade, it’s rather unprecedented compared to what you’ll see in any other industry. … [Customers] can make decent decisions based on their particular financial situation.”

The increases will effect all upgrades to the 700 series and within the 600 series, regardless of what customers are upgrading from. According to Flaada, the pricing changes do amount to an actual rise in cost for customers who choose to upgrade after Feb. 1, but they are not considered to be a price hike per se. Flaada compared the proposed rate adjustment to monthly revisions in the blue-book values car dealerships use to determine the value of a trade-in.

“You almost have to look at it in car dealer terms,” he said. “Whenever we do an upgrade, what we do is we price the upgrade to be the difference between the new product that we are installing for a customer, minus the residual value of the product that we’re taking back. So in effect what this price increase will reflect is not an increase in the price of the 7xx series. What it really reflects is a decrease in the value of the product that we’re taking back.”

IBM regularly readjusts the value of older systems, either annually or when new hardware is introduced. Actual cost increase for customers “depends on where you’re coming from and where you’re going to,” according to Flaada. Value decreases on used products, and therefore increases in upgrade prices, will be more dramatic for upgrades from newer systems, because products lose the most value proportionally in the initial years after they are introduced.

Additional increases will be seen in Software Subscription prices, effective Feb. 1 as well. The P05 pricing tier will be subject to a projected increase of 28 percent, the P10 tier will increase by 18 percent and the P20 through P50 tiers by five percent. Flaada said the price increase reflects the actual usage of the product by consumers as well as the increased number of products included in the package.